SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a - 12
FRANKLIN CAPITAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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[ ] Fee paid previously with preliminary materials.
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FRANKLIN CAPITAL CORPORATION
450 PARK AVENUE
NEW YORK, NEW YORK 10022
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 2002
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The Annual Meeting of Stockholders of Franklin Capital Corporation (the
"Corporation") will be held on November 12, 2002 at 11:30 a.m., New York Time,
at the offices of Weil, Gotshal and Manges, LLP, 767 Fifth Avenue, 25th Floor,
New York, New York 10153 for the following purposes:
1. To elect five (5) directors to hold office until the next Annual
Meeting of Stockholders and until their successors have been duly
elected and have qualified (three (3) of whom are to be elected
by the holders of Common Stock and Preferred Stock, voting
together as a class, and two (2) of whom are to be elected solely
by holders of Preferred Stock);
2. To ratify the appointment by the Board of Directors of the
Corporation (the "Board") of Ernst & Young LLP to serve as
independent auditors for the fiscal year ending December 31,
2002; and
3. To consider and transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board has fixed the close of business on September 16, 2002 as the
record date for the determination of the stockholders entitled to notice of, and
to vote at, the meeting or any adjournment or postponement thereof. Each
stockholder is entitled to one vote for each share of Common Stock, $1.00 par
value, and Preferred Stock, $1.00 par value, held on the record date.
If you cannot attend the meeting, please sign and return the enclosed
proxy card as soon as possible in order that you may be represented at the
meeting. If you attend the meeting, you may vote in person even though you have
sent in a proxy.
By Order of the Board of Directors
SPENCER L. BROWN
SECRETARY
New York, New York
October 23, 2002
FRANKLIN CAPITAL CORPORATION
450 PARK AVENUE
NEW YORK, NEW YORK 10022
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is furnished by the Board of Directors ("the
Board") of Franklin Capital Corporation, a Delaware corporation (the
"Corporation", or "Franklin"), in connection with the solicitation by the
Corporation of proxies for use at the Annual Meeting of Stockholders (the
"Meeting") to be held on November 12, 2002, at 11:30 a.m., New York Time, at the
offices of Weil, Gotshal and Manges, LLP, 767 Fifth Avenue, 25th Floor, New
York, New York 10153. This proxy statement and form of proxy are first being
sent to stockholders on or about October 23, 2002.
RECENT DEVELOPMENTS
On July 1, 2002, Franklin announced that it has exercised its
contractual right to terminate the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of December 4, 2001, between Franklin and Change
Technology Partners, Inc. ("Change"). The Board of Directors of Franklin
believes that, because of a change in circumstances at both companies between
the time the Merger Agreement was signed and July 1, 2002, it is no longer in
the best interests of Franklin and its stockholders to complete the merger.
Franklin is currently exploring other opportunities to solidify its financial
structure and create value for its stockholders.
On September 30, 2002, Excelsior Radio Networks, Inc. ("Excelsior"), a
subsidiary of the Corporation, refinanced $2.25 million of indebtedness owing to
Change pursuant to a note entered into by Excelsior in favor of Change. The
refinancing was funded by Sunshine II, LLC ("Sunshine II"), another shareholder
of Excelsior, pursuant to a Credit Agreement dated as of September 30, 2002
between Excelsior and Sunshine II. The obligations under the Credit Agreement
are guaranteed by Dial Communications Global Media, Inc. ("Dial"), a
wholly-owned subsidiary of Excelsior, and secured by all of the accounts
receivable and proceeds of accounts receivable of Excelsior and Dial. In
connection with the refinancing, Excelsior issued to Sunshine II a warrant for
the purchase of 816,551 shares of Excelsior common stock, $.01 par value, at a
strike price of $1.20 per share. The warrant expires September 30, 2012. In
addition, Excelsior issued to the Corporation a warrant for the purchase of
74,232 shares of Excelsior common stock, having the same strike price and
expiration date as the warrant referred to above. In connection with the
refinancing, Phoenix Enterprises LLC ("Phoenix") and Sunshine II also agreed to
extend until October 31, 2002 the maturity of $750,000 in aggregate principal
amount of indebtedness of Excelsior owing to Phoenix and Sunshine II.
In a related transaction, Sunshine II purchased from the Corporation
773,196 shares of the common stock of Excelsior for an aggregate purchase price
of $1,500,000,
pursuant to a stock purchase agreement between Sunshine II and the Corporation.
After giving effect to the purchase of the common stock, Sunshine II owns
approximately 30.9% and the Corporation owns 59.1% of the issued and outstanding
common stock, and voting power, of Excelsior. On a fully diluted basis, after
giving effect to the exercise of all of the outstanding warrants, including the
warrants referred to above, and the conversion of Sunshine II's outstanding
preferred stock of Excelsior into common stock, Sunshine II and the Corporation
own a total of approximately 57.0% and 29.3%, respectively, of the common stock
of Excelsior. The remaining common stock of Excelsior is owned by Change. In
addition, on or before the earlier of November 30, 2002 and the next annual
meeting of Excelsior, the Corporation and Sunshine II have agreed, based on the
current fully diluted stock ownership, to vote their shares of common stock of
Excelsior to cause the election to the board of directors of Excelsior of two
designees of the Corporation and five designees of Sunshine II.
VOTING AND REVOCABILITY OF PROXIES
Stockholders who execute proxies may revoke them at any time before
they are voted, by delivering to Mr. Spencer L. Brown, Secretary of the
Corporation, at the offices of the Corporation at 450 Park Avenue, 10th Floor,
New York, New York, 10022, before the ballot is cast, either an instrument
revoking the proxy or a duly executed proxy bearing a later date, or by
attending the Meeting and voting in person. A proxy, when executed and not so
revoked, will be voted in accordance with the specifications contained therein.
If no contrary specification is indicated on the proxy, the shares represented
thereby will be voted in favor of (i) the election of the nominees for directors
and (ii) the ratification of the appointment of Ernst & Young LLP as the
Corporation's independent auditors.
In the event that the persons named as proxies propose one or more
adjournments to permit further solicitation with respect to any proposal to be
voted upon at the Meeting, any such adjournments would require the affirmative
vote of a majority of the shares present in person or by proxy at the session of
the Meeting to be adjourned. The proxyholders will vote in favor of such an
adjournment with respect to those proxies which instruct them to vote in favor
of such proposal (including proxies which have no contrary specification with
respect to such proposal), and will vote against such an adjournment with
respect to those proxies which instruct them to vote against or abstain from
voting with respect to such proposal. No adjournment will be for any period
later than December 23, 2002.
Except as stated specifically and except with respect to the election
of directors, which is by plurality of votes cast, each of the matters being
submitted to stockholder vote pursuant to the Notice of Annual Meeting will be
approved if a quorum is present in person or by proxy and a majority of the
votes cast on a particular matter are cast in favor of that matter. In tallying
the vote, abstentions and broker non-votes will be considered to be shares of
Common Stock or Preferred Stock present at the Meeting, but not voting in favor
of the election of the nominees (i.e., they will have the same legal affect as a
vote "against" the election of the nominees).
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EXPENSES OF SOLICITATION OF PROXIES
The solicitation will be made by the Corporation and all expenses will
be borne by the Corporation. The solicitation will be conducted by mail, except
that in a limited number of instances proxies may be solicited by directors,
officers and other employees of the Corporation personally, by telephone or by
facsimile. Accompanying this Proxy Statement is a copy of the Corporation's
Annual Report. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, ADDITIONAL COPIES
OF THE ANNUAL REPORT TO ANY STOCKHOLDER UPON REQUEST IN WRITING ADDRESSED TO
"FRANKLIN CAPITAL CORPORATION, 450 PARK AVENUE, NEW YORK, NEW YORK 10022,
ATTENTION: STOCKHOLDER RELATIONS" OR BY CALLING COLLECT TO (212) 486-2323.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on September 16, 2002, the record date for the
Meeting (the "Record Date"), the outstanding voting securities of the
Corporation consisted of 1,064,500 shares of Common Stock, each of which is
entitled to one vote, and 16,450 shares of Preferred Stock convertible into
Common Stock, each of which is entitled to one vote.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
holdings of any person, including any "group" as that term is defined in Section
13(d)(3) of the Securities Exchange Act of 1934 (as amended, the "1934 Act"),
who was known to the Corporation to be the "beneficial owner", as defined in
Rule 13(d)(3) under the 1934 Act, of more than 5% of the outstanding Common
Stock at the close of business on September 30, 2002. The following information
is based solely on a review by the Corporation of its capital stock transfer
records and on publicly available filings made with the Securities and Exchange
Commission (the "Commission") by or on behalf of stockholders of the
Corporation.
TITLE NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Common The Prudential Insurance Company 187,438 17.6%
Stock of America
751 Broad Street
Newark, NJ 07102
Common Stephen L. Brown, Chairman 143,791(1) 13.5%
Stock c/o Franklin Capital Corporation
450 Park Avenue
New York, New York 10022
3
TITLE NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Common Kuby Gottlieb Special Value Fund 68,900(2) 6.5%
Stock 500 West Madison Avenue, 27th Floor
Chicago, IL 60661
(1) Does not include 41,029 shares of Common Stock beneficially owned by Mr.
Brown's children, 33,494 shares of which are owned by his son, Spencer L.
Brown, Secretary of the Corporation. Mr. Brown disclaims beneficial
ownership of all such shares.
(2) Includes Preferred Stock owned convertible into 30,000 shares of Common
Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
Common Stock beneficially owned, as defined in Rule 13(d)(3) under the 1934 Act,
by each director of the Corporation, each nominee for director, each named
executive officer and by all directors and nominees and named executive officers
of the Corporation as a group, at the close of business on September 30, 2002.
NAME OF BENEFICIAL COMMON SHARES PREFERRED SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT BENEFICIALLY OWNED PERCENT
INTERESTED PERSONS(1)
Stephen L. Brown(2) 143,791 13.5% - *
Spencer L. Brown(3) 33,494 3.1% 250 1.5%
Hiram M. Lazar(4) 9,085 * 100 *
NON-INTERESTED PERSONS
Irving Levine(5) 46,375 4.2% 4,750 28.9%
Michael P. Rolnick(6) 7,250 * 0 -
David T. Lender 300 * 0 -
Laurence I. Foster 0 - 0 -
All officers and directors
as a group (7 persons) 240,295 20.7% 5,100 31.0%
*Less than 1%
(1) Within the meaning of the 1940 Act.
(2) Does not include 41,029 shares beneficially owned by Mr. Brown's children,
including 33,494 shares owned by Spencer L. Brown. See (3) below. Mr. Brown
disclaims beneficial ownership of all such shares.
(3) Also includes Preferred Stock owned convertible into 1,875 shares of Common
Stock.
(4) Includes options currently exercisable for 1,875 shares. Also includes
Preferred Stock owned convertible into 750 shares of Common Stock.
(5) Includes options currently exercisable for 6,250 shares. Also includes
Preferred Stock convertible into 33,750 shares of Common Stock owned by
Copley Fund, Inc. ("Copley").
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Mr. Levine may be a controlling person of Copley due to his position as
Chairman and Chief Executive Officer. Therefore, Mr. Levine may be deemed
to be a beneficial owner of all shares owned by Copley.
(6) Includes options currently exercisable for 6,250 shares.
Set forth below is the dollar range of Common Stock beneficially owned
by each director or nominee as of September 30, 2002:
NAME OF DIRECTOR DOLLAR RANGE OF EQUITY SECURITIES
OR NOMINEE BENEFICIALLY OWNED (1) (2)
INTERESTED PERSONS(3)
Stephen L. Brown over $100,000
NON-INTERESTED PERSONS
Irving Levine over $100,000
Michael P. Rolnick $1 - $10,000
David T. Lender $1 - $10,000
Laurence I. Foster None
(1) Beneficial ownership has been determined in accordance with Rule
16a-1(a)(2) of the Securities Exchange Act of 1934.
(2) The Corporation has not provided information with respect to the "Aggregate
Dollar Range of Equity Securities in All Funds Overseen by Director or
Nominee in Family of Investment Companies" because it is not part of a
family of investment companies.
(3) Within the meaning of the 1940 Act.
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
At the Meeting, the Common Stockholders and Preferred Stockholders,
voting together, will elect three (3) directors. In addition, the holders of the
Preferred Stock, voting separately as a class, will elect two (2) directors who
will thereafter be designated as the Preferred Stock Directors. Each of the five
(5) directors will hold office until the next Annual Meeting of Stockholders and
until their respective successors have been elected and qualified. Each
stockholder of record at the close of business on September 16, 2002 is entitled
to one vote for each share of Common Stock and Preferred Stock registered in the
name of such stockholder on the books of the Corporation.
The term of the present directors of the Corporation expires when
their respective successors have been duly elected and qualified.
Information with respect to each nominee for election as a director of
the Corporation who is an "interested person" of the Corporation within the
meaning of the 1940 Act follows:
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DIRECTOR
NAME AGE POSITION WITH THE CORPORATION SINCE
---- --- ----------------------------- --------
Stephen L. Brown 64 Chairman of the Board, 1986
Chief Executive Officer and Director
STEPHEN L. BROWN, Chairman of the Board, has been Chairman and Chief
Executive Officer since October 1986. Mr. Brown is an "interested person" of the
Corporation within the meaning of the 1940 Act by reason of his positions as
Chairman and Chief Executive Officer of the Corporation. Prior to joining
Franklin, Mr. Brown was Chairman of S.L. Brown & Company, Inc., a private
investment firm. Mr. Brown is a director of Copley Financial Services
Corporation (advisor to Copley Fund, Inc., a mutual fund). Mr. Brown's address
is c/o Franklin Capital Corporation, 450 Park Avenue, New York, New York 10022.
Information with respect to each nominee for election as a
director of the Corporation who is not an "interested person" of the Corporation
within the meaning of the 1940 Act follows:
DIRECTOR
NAME AGE POSITION WITH THE CORPORATION SINCE
---- --- ----------------------------- --------
David T. Lender 49 Director 2000
Irving Levine* 80 Director 1990
Michael P. Rolnick 37 Director 1998
Laurence I. Foster* 61 - -
* Preferred Stock Director
DAVID T. LENDER, a director of the Corporation, is Managing Director at
Banc of America Securities, LLC where he specializes in mergers and
acquisitions. Prior to joining Banc of America Securities, LLC, in 2000 Mr.
Lender was a Managing Director in the Mergers and Acquisitions Group of
Rothschild, Inc. Mr. Lender's address is c/o Banc of America Securities LLC, 9
West 57th Street, New York, NY 10019.
IRVING LEVINE, a Preferred Stock Director of the Corporation, has been
Chairman of the Board and President of Copley Fund, Inc., a mutual fund, since
1978 and Chairman and Treasurer of Stuffco International, Inc., a ladies handbag
processor and chain store operator, since 1978. Mr. Levine is also President and
a director of Copley Financial Services Corporation (advisor to Copley Fund,
Inc.) as well as a director of U.S. Energy Systems, Inc. an independent producer
of clean efficient energy for growing energy markets. Mr. Levine's address is
c/o Copley Fund, Inc. 315 Pleasant Street, 5th Floor, Fall River, MA 02721.
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MICHAEL P. ROLNICK, a director of the Corporation, is a General Partner
at ComVentures, a venture capital firm that invests in early stage Internet and
communications companies. Mr. Rolnick is responsible for private equity
investments and managing portfolio companies. Prior to joining ComVentures in
1999, Mr. Rolnick had been Vice President for New Ventures at E* Trade Group
Inc. since 1997. Mr. Rolnick's address is c/o ComVentures, 305 Lytton Avenue,
Palo Alto, CA 94301.
LAURENCE I. FOSTER, a nominee for election as a Preferred Stock
Director of the Corporation, was a partner at KPMG until his retirement in May,
2000 when he joined Richard E. Eisner & Company LLP's New York City office as a
partner in the personal financial planning practice. In June, 2002 Mr. Foster
became an independent consultant. Mr. Foster holds the American Institute of
Certified Public Accountants "Personal Financial Specialist" (PFS) designation.
Mr. Foster is a member of the American Institute of Certified Public Accountants
where he is the Chairman on the PFS Credential Committee. Mr. Foster is also a
member of the New York State Society of Certified Public Accountants and the
former chairman of their Estate Planning Committee. Mr. Foster's address is 750
Third Avenue, New York, New York 10017.
EXECUTIVE OFFICERS
In addition to Mr. Stephen Brown, the following individuals are
executive officers of the Corporation:
SPENCER L. BROWN, age 37. Mr. Brown has been Senior Vice President
since November 1995, Secretary of the Corporation since October 1994 and was
Vice President from August 1994 to November 1995. Mr. Brown is the son of Mr.
Stephen L. Brown, the Chairman and Chief Executive Officer of the Corporation.
HIRAM M. LAZAR, age 38. Mr. Lazar has been Chief Financial Officer of
the Corporation since January 1999. From June 1992 to January 1999, Mr. Lazar
was Vice-President of Finance and Compliance and Corporate Controller of
Lebenthal & Co., Inc. a regional full-service brokerage firm.
The term of office of the executive officers of the Corporation expires
at the meeting of the Board of Directors when their respective successors have
been elected and have qualified. The Corporation anticipates that each such
officer will be re-elected at the meeting of the Board of Directors to be held
immediately after the Annual Meeting of Stockholders.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth information with respect to all cash
remuneration paid or accrued by the Corporation for services by the
Corporation's directors and the three most highly paid executive officers whose
compensation exceeded $60,000 for the year ended December 31, 2001:
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PENSION OR RETIREMENT TOTAL
COMPENSATION BENEFITS ACCRUED COMPENSATION
FROM THE AS PART OF FROM THE
NAME OF PERSON POSITION CORPORATION CORPORATION EXPENSES CORPORATION
-------------- -------- ------------ --------------------- ------------
INTERESTED PERSONS*
Stephen L. Brown Chairman and Chief
Executive Officer $420,000 $0 $420,000
Spencer L. Brown Senior Vice President
and Secretary $225,000 $0 $225,000
Hiram M. Lazar Chief Financial Officer $130,000 $0 $130,000
NON-INTERESTED PERSONS
David T. Lender Director $ 3,000 $0 $ 3,000
Irving Levine Director $ 3,000 $0 $ 3,000
Michael P. Rolnick Director $ 3,000 $0 $ 3,000
* Within the meaning of the 1940 Act.
With the exception of Mr. Stephen L. Brown, each director of the
Corporation received director's fees of $3,000 for 2001. During the year ended
December 31, 2001, the Corporation reimbursed directors for certain receipted
expenses incurred in connection with the performance of their duties, including
attendance at Board and Committee meetings, in the aggregate amount of $800. Mr.
Brown received no such reimbursement.
On July 26, 2002, the Board authorized an amendment to Stephen L.
Brown's Employment Agreement with the Corporation (as amended, the "Stephen
Brown Employment Agreement"). The Stephen Brown Employment Agreement will now
expire on December 31, 2004 ("the Term"). The Term will automatically renew from
year to year thereafter, unless the Corporation notifies Mr. Brown not less than
120 days prior to the end of any Term in writing that the Corporation will not
be renewing the Stephen Brown Employment Agreement.
The Stephen Brown Employment Agreement provides that Mr. Stephen L.
Brown will serve as the Chairman and Chief Executive Officer of the Corporation
and be responsible for the general management of the affairs of the Corporation,
reporting directly to the Board. It also provides that he will serve as a member
of the Board for the period of which he is and shall from time to time be
elected or reelected.
Mr. Stephen L. Brown receives compensation under the Stephen Brown
Employment Agreement in the form of base salary of $420,000. In addition, the
Board may increase such salary at its discretion from time to time. Mr. Brown is
also entitled to be paid bonuses as the Board determines in its sole discretion.
Under the Stephen Brown Employment Agreement, the Corporation furnishes Mr.
Brown with an automobile and reimburses him for certain expenses related to such
automobile. In addition, Mr. Brown is reimbursed for expenses related to
membership in a club to be used primarily for business purposes. Mr. Brown is
entitled under the Stephen Brown Employment Agreement to participate in any
employee benefit plans or programs and to receive all
8
benefits, perquisites and emoluments for which salaried employees are eligible.
Mr. Brown is also entitled to severance pay in the event of termination without
cause or by constructive discharge equal to the remaining base salary payable
under the Stephen Brown Employment Agreement and provides for death benefits
payable to his surviving spouse equal to Mr. Brown's base salary for a period of
one year.
In addition, on July 26, 2002 the Board authorized an amendment to
Stephen L. Brown's Severance Agreement (as amended, the "Stephen Brown Severance
Agreement"). Under the terms of the Stephen Brown Severance Agreement, Mr. Brown
is entitled to receive severance if following a change in control (as defined in
the Stephen Brown Severance Agreement) his employment is terminated by the
Corporation without cause or by the executive within one year of such change in
control. The amendment has increased the amount of the severance payment Mr.
Brown is entitled to receive upon the occurrence of such event from 1.5 to 2.5
times his average compensation over the past five years.
On July 26, 2002, the Board authorized an amendment to Spencer L.
Brown's Employment Agreement with the Corporation (as amended, the "Spencer
Brown Employment Agreement"). The Spencer Brown Employment Agreement will now
expire on December 31, 2004. The term of the Spencer Brown Employment Agreement
will automatically renew from year to year thereafter, unless the Corporation
notifies Mr. Brown not less than 120 days prior to the end of any term in
writing that the Corporation will not be renewing the Spencer Brown Employment
Agreement.
The Spencer Brown Employment Agreement provides that during the period
of employment Mr. Spencer L. Brown will serve as the Senior Vice-President and
Secretary of the Corporation, reporting to the Chairman and the Board, and will
serve as a member of the Board for the period of which he is and shall from time
to time be elected or reelected.
Mr. Spencer L. Brown receives compensation under the Spencer Brown
Employment Agreement in the form of base salary of $225,000. In addition, the
Board may increase such salary at its discretion from time to time. Mr. Brown is
also entitled to be paid bonuses as the Board determines in its sole discretion.
Under the Spencer Brown Employment Agreement, the Corporation reimburses Mr.
Brown for expenses related to the use of an automobile and for expenses related
to membership in a club to be used primarily for business purposes. Mr. Brown is
entitled under the Spencer Brown Employment Agreement to participate in any
employee benefit plans or programs and to receive all benefits, perquisites and
emoluments for which salaried employees are eligible. Mr. Spencer L. Brown is
also entitled to severance pay in the event of termination without cause or by
constructive discharge equal to the remaining base salary payable under the
agreement and provides for death benefits payable to his surviving spouse equal
to Mr. Brown's base salary for a period of one year.
In addition, on July 26, 2002 the Board authorized an amendment to
Spencer L. Brown's Severance Agreement (as amended, the "Spencer Brown Severance
9
Agreement"). Under the terms of the Spencer Brown Severance Agreement, Mr. Brown
is entitled to receive severance if following a change in control (as defined in
the Spencer Brown Severance Agreement) his employment is terminated by the
Corporation without cause or by the executive within one year of such change in
control. The amendment has increased the amount of the severance payment Mr.
Brown is entitled to receive upon the occurrence of such event from 1.5 to 2.5
times his average compensation over the past five years.
COMPENSATION PURSUANT TO PLANS
On September 9, 1997, Franklin's stockholders approved two Stock Option
Plans: a Stock Incentive Plan ("SIP") to be offered to the Corporation's
consultants, officers and employees (including any officer or employee who is
also a director of the Corporation) and a Non-Statutory Stock Option Plan
("SOP") to be offered to the Corporation's "outside" directors, i.e., those
directors who are not also officers or employees of Franklin. 112,500 shares of
the Corporation's Common Stock have been reserved for issuance under these
plans, of which 67,500 shares have been reserved for the SIP and 45,000 shares
have been reserved for the SOP. Shares subject to options that terminate or
expire prior to exercise will be available for future grants under the Plans.
Because the issuance of options to "outside" directors is not permitted under
the 1940 Act without an exemptive order by the Commission, the issuance of
options under the SOP was conditioned upon the granting of such order. The order
was granted by the Commission on January 18, 2000. No options were issued during
2001.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 2001, the Board met on seven
occasions and acted by unanimous written consent on one occasion.
The Audit Committee held one meeting during the year ended December 31,
2001. The Audit Committee meets with the Corporation's independent auditors to
review the Corporation's financial statements and the adequacy of internal
controls and accounting systems. The members of the Audit Committee as of
December 31, 2001 were Messrs. Levine (Chairman), Lender and Jonathan Marshall.
In connection with Mr. Marshall becoming a partner of Weil, Gotshal & Manges
LLP, outside counsel to Franklin, Mr. Marshall resigned from the Board and its
committees on April 22, 2002 and will be replaced on the Audit Committee by Mr.
Foster upon his election to the Board.
The Executive Committee meets between meetings of the Board. The
Executive Committee generally may exercise the authority of the Board and may
approve financings not to exceed $500,000. The Executive Committee did not meet
during the year ended December 31, 2001. The members of the Executive Committee
as of December 31, 2001 were Messrs. Brown, Levine and Marshall.
The Compensation Committee meets to consider compensation of executive
officers of the Corporation. The Compensation Committee did not meet during the
year ended December 31, 2001. The members of the Compensation Committee as of
10
December 31, 2001 were Messrs. Marshall (Chairman) and Levine. Mr. Marshall will
be replaced on the Compensation Committee by David T. Lender.
Each director attended at least 75% of the aggregate number of meetings
of the Board and of Board Committees on which he served. The Board determines
and appoints director nominees for election.
AUDIT COMMITTEE REPORT
The Audit Committee reviewed and discussed with management the
Corporation's audited financial statements as of and for the year ended December
31, 2001. The Audit Committee also discussed with the independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committee's responsibilities are set forth in the Audit
Committee Charter adopted by the Board. A copy of the Audit Committee Charter is
attached as Appendix A. Each of the members of the Audit Committee qualifies as
an "independent" director under the applicable listing standards of the American
Stock Exchange.
The Audit Committee received and reviewed the written disclosures and
the letter from the independent accountants required by Independence Standard
No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by the
Independence Standards Board, and have discussed with the accountants the
accountants' independence. The Audit Committee considered whether the provisions
of non-financial audit services were compatible with Ernst & Young LLP's
independence in performing financial audit services.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board that the financial statements referred to
above be included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Commission. The Audit Committee also
recommends the selection of Ernst & Young to serve as independent accountants
for the year ending 2002.
Members of the Audit Committee as of December 31, 2001:
Irving Levine
David T. Lender
Jonathan Marshall
BROKERAGE TRANSACTIONS
During the year ended December 31, 2001, the Corporation paid aggregate
brokerage commissions of approximately $43,000.
Brokers are selected by the Board, whose primary considerations are the
cost and efficiency of execution of brokerage orders. No person acting on behalf
of the
11
Corporation is authorized to pay a brokerage commission to a broker in excess of
that which another broker might have charged for effecting the same transaction
in recognition of the value of research services provided by the broker.
INVESTMENT ADVISOR
The Corporation does not engage the services of an investment advisor,
principal underwriter or administrator.
AFFILIATED TRANSACTIONS
On February 1, 2001, the Corporation sold to Avery Communications, Inc.
("Avery") 1,183,938 shares of common stock and 350,000 shares of preferred stock
of Avery representing its entire holding in Avery, for $1,557,617 plus accrued
dividends on the preferred stock for a realized gain net of expenses of
$137,759. As part of the sale the Corporation retained the right to receive
1,533,938 shares of Primal Solutions, Inc. ("Primal"), a wholly-owned subsidiary
of Avery. On February 13, 2001, Primal announced that Avery had completed a
spin-off of Primal and Franklin received 1,533,938 fully registered and
marketable shares of Primal. During the year ended December 31, 2001, Franklin
sold 1,150,000 shares of Primal for total proceeds of $53,861, realizing a loss
of $130,139.
On August 28, 2001, Franklin purchased the assets of Winstar Radio
Networks, Global Media and Winstar Radio Productions (collectively "WRN"), for a
total purchase price of $6.25 million. Change provided $2.25 million of senior
financing for the deal. Prior to this financing, Franklin had no prior
transactions or affiliations with Change. The acquisition was consummated
through eCom Capital Inc., subsequently renamed Excelsior Radio Networks, Inc.,
a then wholly-owned subsidiary of Franklin. Franklin's total investment was $2.5
million consisting of $1.5 million in cash and a $1 million note payable to WRN.
The note by its terms became due February 28, 2002 with interest at 3.54% and
has a right of set-off against certain representations and warranties made by
WRN. In October 2001, a legal proceeding (described in detail below) was filed
against WRN, which also named Franklin as a defendant, in which the
representations and warranties made by WRN have been challenged. Until the time
that this action is settled the due date of the note is extended indefinitely.
Additionally, Franklin loaned $150,000 to Excelsior pursuant to a Note. The note
bore interest at 10% per annum and is issued for a ninety-day rolling period. In
connection with this note, Franklin was granted warrants to acquire 12,879
shares of Excelsior common stock at an exercise price of $1.125 per share. As of
December 31, 2001, $75,000 of this note had been repaid. The balance of the note
was repaid in full on February 28, 2002. In connection with the then proposed
merger between Franklin and Change, Change purchased from Franklin 250,000
shares of common stock of Excelsior for $250,000.
On October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family
Partnership, L.P. filed a lawsuit against Franklin, Sunshine Wireless, LLC
("Sunshine") and four other defendants affiliated with Winstar Communications,
Inc. in the Superior Court of the
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State of California for the County of Los Angeles. The lawsuit, which has
subsequently been removed to the United States District Court for the Central
District of California, alleges that the Winstar defendants conspired to commit
fraud and breached their fiduciary duty to the plaintiffs in connection with the
acquisition of the plaintiffs' radio production and distribution business. The
complaint further alleges that Franklin and Sunshine joined the alleged
conspiracy. The business was initially acquired by certain entities affiliated
with Winstar Communications and, subsequently, the assets of such business were
sold to Franklin and Sunshine. Concurrently with such purchase, Franklin
transferred such assets to Excelsior. The plaintiffs seek recovery of damages in
excess of $10,000,000, costs and attorneys' fees. On January 7, 2002, Franklin
filed a motion to dismiss the lawsuit or, in the alternative, to transfer venue
to the United States District Court of the Southern District of New York. The
plaintiffs filed a motion opposing Franklin's request on January 28, 2002.
Franklin's motion for dismissal was granted on February 25, 2002, due to
improper venue. On June 7, 2002, the plaintiffs filed their complaint to the
United States District Court of the Southern District of New York. On July 12,
2002, Franklin filed a motion to dismiss the complaint. Franklin believes that
plaintiffs' claims are without merit and intends to defend this lawsuit
vigorously, though the outcome cannot be predicted at this time. An unfavorable
outcome in this lawsuit may have a material adverse effect on Franklin's
business, financial condition and results of operations.
In connection with the closing of the asset acquisition from WRN,
Franklin entered into a services agreement with Excelsior whereby Franklin
agreed to provide Excelsior with certain services through December 31, 2003. In
consideration for the services provided, for a period of six months Franklin
will receive $30,000 per month and be reimbursed for all direct expenses.
Subsequently, Franklin's monthly fee will be determined by a majority of the
non-Franklin directors but will be no less than $15,000 per month. Franklin will
continue to be reimbursed for all direct expenses. Finally, the agreement
provides that Franklin's chief financial officer will serve in that capacity for
Excelsior and his salary and benefits will be allocated between Excelsior and
Franklin on an 80/20 basis. During the year ended December 31, 2001, Franklin
earned $120,000 in management fees and was reimbursed by Excelsior $40,156 for
salary and benefits for Franklin's chief financial officer, which was recorded
as a reduction of expenses on Franklin.
During the year ended December 31, 2000, the Corporation invested
$140,000 in Excom Ventures, LLC. ("Excom"). Excom was formed as a holding
company for the purpose of investing in Expert Commerce, Inc., a
Business-to-Business purchase evaluation engine that simulates the way people
make decisions. At December 31, 2001, the Corporation determined that this
investment has no value and has marked these securities down to reflect that
determination.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board recommends that stockholders vote "FOR" the persons named
herein to serve as directors until the next Annual Meeting of Stockholders and
until their
13
respective successors have been duly elected and have qualified. Under Delaware
law, directors are elected by a plurality of the votes of the shares present in
person or represented by proxy and entitled to vote in the election of
directors.
All nominees have consented to stand for election and to serve if
elected. If any nominee should be unable to serve in such position, an event not
presently anticipated, the proxies voted for such a person, if any, as shall be
designated by the Board to replace any such nominee, unless the Board reduces
the number of directors constituting the whole Board.
In the absence of contrary instructions, the Corporation intends to
vote all proxies "FOR" the election of the nominees listed above as Directors of
the Corporation. In tallying the vote, abstentions and broker non-votes will be
considered to be shares of Common Stock or Preferred Stock present at the
Meeting, but not voting in favor of the election of the nominees (i.e., they
will have the same legal affect as a vote "against" the election of the
nominees).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Corporation's executive
officers and directors, and persons who beneficially own more than 10% of the
Common Stock, to file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Form 4 or 5), of securities of
the Corporation with the Commission and the American Stock Exchange. Executive
officers, directors and greater than 10% stockholders also are required to
furnish the Corporation with copies of all forms that they file pursuant to
Section 16(a).
To the Corporation's knowledge, based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no additional forms were required for those persons, the
Corporation believes that its executive officers, directors and greater than 10%
beneficial owners complied with the Section 16(a) filing requirements applicable
to them during 2001.
14
PROPOSAL TO APPROVE SELECTION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Board has appointed Ernst & Young LLP as the Corporation's
independent auditors for the fiscal year ending December 31, 2002. The audit
services performed by Ernst & Young LLP for the year ended December 31, 2001
included an examination of the financial statements included in the 2001 Annual
Report to Stockholders.
Ernst & Young LLP has advised the Corporation that it has neither any
direct nor any material indirect financial interest in the Corporation. It is
expected that a representative of Ernst & Young LLP will be present at the
Meeting and will have an opportunity to make a statement if he desires to do so
and to respond to appropriate questions.
AUDIT FEES. The aggregate fees billed for professional services
rendered by Ernst & Young LLP for 2001 for the audit of the Corporation's annual
financial statements for 2001 and for the review of the financial statements
included in the Corporation's Forms 10-Q for 2001 were $103,100.
ALL OTHER FEES. There were no other fees billed by Ernst & Young LLP
for 2001.
The Board recommends that stockholders vote "FOR" ratification of the
appointment of Ernst & Young LLP as independent auditors for the year ending
December 31, 2002.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2003 Annual
Meeting must be received in writing by the Corporation not later than April 1,
2003 in order to be considered for inclusion in the proxy statement relating to
such meeting, which the Corporation anticipates will be held in June 2003.
OTHER MATTERS
The Board of Directors does not know of any other matters that may
properly be brought, and which are likely to be brought, before the Meeting.
However, should other matters be properly brought before the Meeting, the
persons named on the enclosed proxy or their substitutes will vote in accordance
with their best judgment on such matters.
By Order of the Board of Directors
SPENCER L. BROWN
SECRETARY
October 23, 2002
15
APPENDIX A
FRANKLIN CAPITAL CORPORATION
AUDIT COMMITTEE CHARTER
ADOPTED JUNE 7, 2000
ORGANIZATION
This charter governs the operations of the audit committee (the "Committee") of
the Board of Directors of Franklin Capital Corporation (the "Corporation"). The
Committee shall review and reassess the charter at least annually and obtain the
approval of the board of directors. The Committee shall be appointed by the
board of directors and shall comprise at least three directors, each of whom are
independent of management and the Corporation. Members of the Committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Corporation. All
Committee members shall be financially literate, or shall become financially
literate within a reasonable period of time after appointment to the Committee,
and at least one member shall have accounting or related financial management
expertise.
STATEMENT OF POLICY
The audit Committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Corporation's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Corporation's financial statements, and the
legal compliance and ethics programs as established by management and the board.
In so doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee, independent auditors, the internal auditors
and management of the Corporation. In discharging its oversight role, the
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Corporation
and the power to retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Corporation's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Corporation's financial statements, and the independent auditors are responsible
for auditing those financial statements. The Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
16
The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
o The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the Committee, as representatives of the
Corporation's shareholders. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate,
recommend the replacement of the independent auditors. The Committee
shall discuss with the auditors their independence from management and
the Corporation and the matters included in the written disclosures
required by the Independence Standards Board. Annually, the Committee
shall review and recommend to the board the selection of the
Corporation's independent auditors, subject to shareholders' approval.
o The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
Committee shall discuss with management, the internal auditors, and
the independent auditors the adequacy and effectiveness of the
accounting and financial controls, including the Corporation's system
to monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet separately with the
internal auditors and the independent auditors, with and without
management present, to discuss the results of their examinations.
o The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Corporation's Quarterly Report on Form 10-Q. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent
auditors under generally accepted auditing standards. The chair of the
Committee may represent the entire Committee for the purposes of this
review.
o The Committee shall review with management and the independent
auditors the financial statements to be included in the Corporation's
Annual Report on Form 10-K (or the annual report to shareholders if
distributed prior to the filing of Form 10-K), including their
judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the
Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
17
FRANKLIN CAPITAL CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 12, 2002
The undersigned hereby appoints Stephen L. Brown and Hiram Lazar, or
either of them, as attorneys and proxies to vote all the shares of common stock,
par value $1.00 per share, of Franklin Capital Corporation (the "Corporation")
and/or all the shares of Preferred Stock, par value $1.00 per share, of the
Corporation, as applicable, which are outstanding in the name of the undersigned
and which the undersigned would be entitled to vote as of September 16, 2002, at
the Annual Meeting of Stockholders of the Corporation (the "Meeting"), to be
held at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, 25th Floor,
New York, New York, on Tuesday, November 12, 2002 at 11.30 a.m., New York Time,
and at any or all adjournments or postponements thereof; and the undersigned
hereby instructs and authorizes said attorneys to vote as indicated on the
reverse side.
The shares represented hereby will be voted in accordance with the
instructions contained on the reverse side. If no instructions are given the
shares will be voted FOR the election of all of the applicable nominees in item
1 and FOR items 2 and 3 below, each of said items being more fully described in
the Notice of Meeting and accompanying Proxy Statement, receipt of which is
hereby acknowledged. In the event of any proposed adjournment of the Meeting to
permit further solicitation of proxies with respect to any proposal listed
below, shares will be voted FOR adjournment with respect to such proposal if
they were to be voted FOR such proposal (including if there were no
specifications), and AGAINST adjournment with respect thereto if such shares
were to be voted AGAINST or to have ABSTAINED from voting with respect to such
proposal.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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o FOLD AND DETACH HERE o
Please mark
your votes as [X]
indicated in
this example
1. ELECTION OF DIRECTORS: 01. Stephen L. Brown, 02. David T. Lender, 03. Michael
P. Rolnick, 04. Irving Levine (to be elected solely by Preferred Stockholders),
05. Lawrence Foster (to be elected solely by Preferred Stockholders)
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
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FOR THE ELECTION OF ALL WITHHOLDING
APPLICABLE NOMINEES LISTED AUTHORITY TO VOTE
(EXCEPT AS MARKED TO THE FOR ALL APPLICABLE
CONTRARY ON THE LINE ABOVE) NOMINEES LISTED ABOVE
[ ] [ ]
FOR AGAINST ABSTAIN
2. Ratification of appointment of Ernst &
Young LLP to serve as independent auditors of [ ] [ ] [ ]
the Corporation for the fiscal year ending
December 31, 2002.
FOR AGAINST ABSTAIN
3. In their discretion, on such other matters
as may properly come before the Meeting [ ] [ ] [ ]
(other than adjournments with respect to any
proposal as described on reverse).
THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE.
PLEASE DATE, SIGN AND MAIL PROXY CARD IN THE ENCLOSED ENVELOPE
If you only own Common Stock of the Corporation, please sign on the line below
titled "Signature of Common Stockholder." If you only own Preferred Stock of the
Corporation, please sign on the line below titled "Signature of Preferred
Stockholder." If you own both Common Stock AND Preferred Stock, please sign both
lines.
SIGNATURE OF COMMON STOCKHOLDER(S)______________________ DATED____________, 2002
SIGNATURE OF PREFERRED STOCKHOLDER(S)___________________ DATED____________, 2002
Please sign as name appears hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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o FOLD AND DETACH HERE o